How To Make ££££'s From Letting Your Spare Room

Got a spare room and in need of some extra cash? A government scheme could allow to you earn £7500 tax free by letting it out.

The July 2015 budget left many people wincing at the thought of how it will affect them, but for homeowners in need of extra cash there was good news. As of April 2016 the tax-free amount that can now be earned from renting a spare room will rise to £7,500.

The 'Rent a Room' scheme currently allows up to £4,250 a year tax-free, so this considerable hike is particularly good news for owners in London and other affluent areas where the potential gains can be far higher for taking in a lodger.

Find a Tenant

Finding potential lodgers is now an easy process thanks to the internet. Of course you can still put up some adverts locally (newsagents etc.), but popular sites such as Gumtree (general 'noticeboard' style adverts), and dedicated sites for lodging such as 'SpareRoom', allow you to reach more people; and ultimately have a greater selection from which to find a suitable tenant.

When placing your advert you'll need to have decided what sort of arrangement works best for you. For example, if you can't commit to having paying guests all week round, you may consider offering week-night accommodation for professionals who normally have to commute in to work. Alternatively you may just want to rent out during certain periods, in which case tourists would probably be your target market.

Renting out your room on a daily basis will mean that you can also charge a higher rate, but on the flipside you may have breaks between tenants, meaning it doesn't generate a regular income.

Travel networking websites generally don't charge a fee for listing, which means you can tentatively dip your toe in the water if that suits you better. Such sites do tend to charge a processing fee though, once a guest has been found. Such fees are around 3%, so shouldn't sting too much. 'Airbnb' is one of the most popular sites around, and a good place to start if you're looking to take this route.

Get yourself covered

Before taking anyone in, you're going to need to make sure that you have adequate buildings and contents insurance for your home. You'll need to specifically inform your provider as to the lodging arrangements in order for them to calculate the risk into your premium. This may lead to a rise in price for your insurance, but it should hopefully be well offset by the gains you'll make from renting.

You'll also need to inform your mortgage provider. This shouldn't pose any problems for you, but it's likely that you will be breaching your terms and conditions if you don't.

References and other considerations

Once you've got your potential lodger in place, you should make the appropriate checks by asking them to provide references. Ideally this will be their employer or current landlord, or you can speak to by phone, or who will at least provide a written reference.

You might also consider how having another person living in your home is going to increase your utility bills. The easiest way to do this is to calculate a percentage based on the current utility costs divided by the number of people occupying the property. For example, a household of three people paying £45 per month for electricity, may expect the monthly cost to rise up to a maximum of £60 per month, if a fourth person moved in. Once you've worked out how much extra it's likely to cost, you can simply add the relevant pro-rata amount onto the rent price of the room.

A deposit is another consideration if you're taking in a long-term tenant. You should look to set this at 5-6 weeks, to discourage the tenant from refusing to pay the final months rent. You're not legally obliged to use any formal paperwork, but it's a good idea to try and get some sort of standardised agreement in writing, in terms of the deposit amount and notice period.

Finally, you may want to think about constructing an inventory of the room. Once the tenant has signed it they are basically taking responsibility for the damage or loss of any items, - which may be of particular comfort if you're providing the room furnished with a TV or other expensive items.